Economy is not out of the woods yet, buyers say
Tom Stundza -- Purchasing, 11/7/2002 2:00:00 AM
Confidence about a recovery in demand for industrial commodities took 
a turn for the worse in October, according to PURCHASING magazine's monthly Business Survey. Continued poor economic news caused one purchasing manager to declare "there [will be] no big pickup from the industrial sector in the near term." In fact, 69% of buyers commenting on business conditions in October turned in dim views for the immediate future. The purchasing manager for a metal fabricating plant in Indiana says: "Incoming orders are slow at best. It's as if manufacturing has come to a dead stop."
For buyers, the weakening industrial economy is creating unique problems. "We've experienced a multitude of suppliers either with a lot of stock or no stock and little ability to produce due to their cutbacks," says the senior buyer at an Illinois plant that makes transformers and industrial battery chargers.
A healthy percentage of buyers polled in October grouse about the West Coast dock strike. Faced with a judge's order to reopen West Coast ports during contract talks, longshoremen and shipping companies are confronting the mammoth task of heaving billions of dollars worth of idle cargo—from auto parts to DRAMs—back into the nation's economy.
Atop that, there are reports of shipping headaches in the Midwest because of consolidations among less-than-truckload carriers. "Some scheduled trucks aren't showing up in the peak freight season because of company shutdowns, leaving us with fewer alternatives," says the buyer of facility services for a Midwest paint maker.
The manager of key suppliers at a semiconductor assembly equipment plant in Pennsylvania reports: "Manufacturing clearly is weakening from an already low level because insufficient profitability is inhibiting capital spending. Now, concern over the economy and Iraq is causing excessive conservatism. Although interest rates are low, the banks are spooked and playing it very tight with credit. And it now seems that consumer sentiment is turning down. We are planning for a weak fourth quarter and a weak 2003."
Similar views are expressed by a majority of buyers either commenting on current business conditions or forecasting future economic activity. "Current conditions are fairly strong, but show signs of weakening," says a buyer at an Illinois automotive tool fabrication plant. The senior buyer at a driveshaft plant in Indiana says, "Overall business has slowed down since the summer."
A common complaint comes from the senior buyer at an automated bulk material handling equipment plant in New Jersey, who says: "Business is way behind forecast." The purchasing manager of an appliance controls firm in Texas says, "We are in a slump of record duration with no immediate sign of coming out of it."
"Business is horrible," says a buyer at a Wisconsin fabricator of stainless steel sanitary storage tanks. "There's a good chance we won't make it."
Even at firms that have had good sales years, an autumn slowdown is apparent. "Business has been strong, but recently we have seen a decrease in orders," says the purchasing manager at an Iowa plant that makes polyurethane wheels and tires for electric lift trucks.
Buyers have become very cautious about the economic outlook. Growing skepticism that demand growth will hold up in coming months has companies pulling back on production and trying to meet demand from inventories. PURCHASING's survey results mesh with market research from early October that suggests automakers are reducing future sales estimates, large truck and construction equipment markets are weakening rather than improving, electronics distribution is slowing, nonferrous metals markets are softening and the telecommunications industry is on the verge of major restructuring.
Leadtimes have been extending, but only for such things as specialty electronics, some plastic resins, and a few bulk chemicals from offshore. Longest delivery times continue to be for specialty items—certain valves and pumps, electro-mechanical switches, special-order electronic component sets, specialty resistors, rodless cylinders, specialty seals and gaskets, laminated tubing, temperature transmitters, subfractional electric motors, and the like.
Until there are more positive economic numbers, analysts suggest that prices of industrial commodities will continue to lower. Still, PURCHASING's national survey finds reports of price-hike confrontations between buyers and sellers in markets for integrated circuits and other specific electronic components, chemicals, gases, plastic resins, aluminum, copper, other nonferrous metals, bearings, castings, fabricated metal and plastic parts, cutting tools, lumber and other wood products, including paper packaging.
The industrial raw material creating the biggest and most frequent tensions between suppliers and purchasing managers continues to be steel—mostly carbon-grade sheet mill products. One buyer complains: "Mills and distributors don't have on hand what's needed for quick deliveries." While spot sheet steel pricetags have begun to slip, some producers are announcing higher 2003 contract prices. "Every supplier wants to raise prices even though the manufacturing economy is slow and their customers aren't accepting increases," says the buyer for a specialty alloy fabricating plant in Indiana.
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